Supreme Court slashes $2.5B Exxon Valdez award
The U.S. Supreme Court’s decision Wednesday slashing the damages Exxon Mobil (XOM) must pay as a result of the 1989 Exxon Valdez oil spill could have unexpectedly wide-ranging consequences. An award to Alaskan fishermen and other residents was reduced from $2.5 billion to about $500 million.
In its ruling, the high court grapples once more with an issue that has long dogged corporate America and its adversaries: at what point is a verdict that’s meant to punish a defendant and deter future wrongdoing — rather than to compensate the plaintiff for his actual damages — excessive? In one the best-known cases, the Supreme Court in 1996 struck down a $2 million punitive-damages award over a $4,000 BMW paint job.
The decision in Exxon Shipping v. Baker arose in a different context than any of the previous punitive-damages cases decided by the Supreme Court — and in a context that many experts had thought might give the ruling somewhat less significance than usual. In earlier cases, the Court always decided whether the jury in a state court case had imposed an excessive punitive damages award. In such cases, the Supreme Court’s only justification for intervening was if it found that the federal Constitution barred the outcome — i.e., by ruling that the award was so outrageous as to violate due process.
The Exxon case, in contrast, was a federal maritime case, and the U.S. Supreme Court had the power to reduce the award on much narrower grounds: as a mere exercise of its so-called federal common-law jurisdiction. Since punitive damages awards in federal maritime cases are not a major source of anxiety for the business community, the case could easily have been decided in a way that would have had little significance for Chamber-of-Commerce types.
Nevertheless, Justice David Souter, writing for a 5-3 majority, seemed to go out of his way to hint that the rule he was announcing for federal maritime cases in the Exxon case – a rule that generally dictates a maximum 1:1 ratio between a punitive damages award and a jury’s compensatory award – might also reflect what the outcome would have been had it been decided on constitutional grounds. “In this case,” he wrote in the last footnote of the decision, “the constitutional outer limit may well be 1:1.” By cutting the Exxon Valdez verdict to $500 million, the high court set a 1:1 ratio with the $507.5 million compensatory damage portion of the jury’s award in the case.
“It can’t have been an accident,” says Evan Tager of Souter’s inclusion of Souter’s provocative footnote. Tager is a partner in the national law firm Mayer Brown, a specialist in punitive-damages cases (always on the pro-business side of the ledger, I should disclose), and worked on an amicus brief supporting Exxon’s position in this case. “They didn’t have to talk about constitutional issues at all. It seems like a signal to the lower courts that they intend to take this 1:1 line, which was first drawn in State Farm [v. Campbell], much more seriously than they have been in prior cases.”
In the State Farm case, decided in 2003, the Supreme Court court ruled that as a matter of constitutional law, it would be an extremely rare case in which punitive damages could constitutionally exceed compensatory damages by a more than 9:1 ratio, and added that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.” Souter argued in the footnote that the compensatory award of $507.5 million was “substantial,” especially in the sense that it was sufficient in itself to act as “encouragement” for wronged parties to bring suit.
Three justices from the more liberal wing of the court — John Paul Stevens, Ruth Bader Ginsberg, and Stephen Breyer — dissented from the ruling, arguing that the Court should let Congress fashion a 1:1 rule if it wants one, rather than taking the initiative and fashioning one of its own. (They tweaked the conservative majority for failing to exhibit “judicial restraint” – a principle conservative judges ordinarily champion.) The dissenters also rejected the majority’s apparent assumption that Exxon as a company was largely blameless for the criminal recklessness of the Exxon Valdez pilot, who, according to the court record, had downed five double vodkas before leaving port and, ultimately, running the tanker aground on a reef.
“The jury could reasonably have believed,” wrote Justice Stephen Breyer, “that Exxon knowingly allowed a relapsed alcoholic repeatedly to pilot a vessel filled with millions of gallons of oil through waters that provided the livelihood for the many plaintiffs in this case. Given that conduct, it was only a matter of time before a crash and spill like this occurred.”
The Exxon case also raised one side issue – an increasingly sore point among Supreme Court practitioners: the problem of justices recusing themselves from cases, usually because of stock-holdings. Justice Samuel Alito recused himself in the Exxon case (the justices do not state their reasons when they do so) and, as a result, one of the issues the Court had planned to decide in this case – whether federal maritime law permits punitive damages to be awarded against a corporate defendant solely based upon the reckless conduct of a “managerial employee” – resulted in a 4-4 tie vote. In such cases, the lower court’s ruling stands, but has no precedential weight.
Earlier this term an important preemption case, Warner-Lambert v. Kent, suffered a similar fate, while the Court last month was forced to decline review of a decision permitting a massive lawsuit against companies who did business with apartheid South Africa to go forward when four justices had to recuse themselves, leaving the court without a quorum.
Face it, in its decision, the Supreme Court grappled with its efforts to completely undermine the fairness of the judicial process. The Roberts Court has become an vehicle for the Defense Bar that seemingly seeks to curry favor with the corporate titans that currently hold the lease on the White House. The environment is for sale to the lowest of bidders.
If the state courts are assumed correct, then all compensation damages were paid. This means that they completely recouped any damages, and suffered no further losses. The punitive damages is, as described, to punish, and nothing but winning the lottery to those who get them. Not all greed is corporate.
If the state courts are assumed correct, then all compensation damages were paid. This means that they completely recouped any damages, and suffered no further losses. The punitive damages is, as described, to punish, and nothing but winning the lottery to those who get them. Not all greed is corporate.
Hey Morris,
You say you “would not support Exxon in any way, shape, form, or fashion ever!” [sic]
Do you own any mutual funds? Do you buy anything made out of plastic? How about if you buy anything that’s shipped to you that uses an internal combustion engine?
Irrational. Funny, but irrational.
Hey Morris,
You say you “would not support Exxon in any way, shape, form, or fashion ever!” [sic]
Do you own any mutual funds? Do you buy anything made out of plastic? How about if you buy anything that’s shipped to you that uses an internal combustion engine?
Irrational. Funny, but irrational.
The captain of the Exxon Valdez was born in 1946, as were Bill Clinton and George W. Bush. Hillary Clinton was born in 1947, and 60% of Congress are Baby Boomers.
I THINK THAT EXPLAINS EVERYTHING…
The captain of the Exxon Valdez was born in 1946, as were Bill Clinton and George W. Bush. Hillary Clinton was born in 1947, and 60% of Congress are Baby Boomers.
I THINK THAT EXPLAINS EVERYTHING…
Clearly, the justices were influenced by a corporate societies need for greed, and have no idea what it’s like to have your lifestyle taken away by that greed. They have joined the food chain, which unfortunately smells like oil. Richard King….. commercial fisherman, plaintif
Clearly, the justices were influenced by a corporate societies need for greed, and have no idea what it’s like to have your lifestyle taken away by that greed. They have joined the food chain, which unfortunately smells like oil. Richard King….. commercial fisherman, plaintif
Ken, as a retired Exxon Mobil Corporation staffer, I resent your unfounded attack. We immediately took action, cleaning up the spill and voluntarily compensating more than 11,000 Alaskans and businessmen, paid cleanup payments, settlements and fines, spending more than $3.4 billion in the process. The State of Alaska declared the cleanup complete in 1992.
Ken, as a retired Exxon Mobil Corporation staffer, I resent your unfounded attack. We immediately took action, cleaning up the spill and voluntarily compensating more than 11,000 Alaskans and businessmen, paid cleanup payments, settlements and fines, spending more than $3.4 billion in the process. The State of Alaska declared the cleanup complete in 1992.
Ken, your misleading statement that exxon is delaying “any” payment is a complete lie and shows that you know nothing about this case. Exxon has already paid all actual damages to those affected by the spill, paid for all the clean up, environmental studies, and government fines. AND LASTLY they have already paid the $507.5 million in compensatory damages from this case.
The Supreme Dorks are really putting the “pun” in “punitive.” Legislate away, judges… I guess we really have a monarchy in this country. Hopefully Congress will, as they have so often been forced to do in the past, pass actual legislation that overrides W’s toadies.
“Oh, what do you do with a drunken sailor, what do you do with a drunken sailor, make him the captain of an Exxon tanker, early in the morning!”
The Supreme Dorks are really putting the “pun” in “punitive.” Legislate away, judges… I guess we really have a monarchy in this country. Hopefully Congress will, as they have so often been forced to do in the past, pass actual legislation that overrides W’s toadies.
“Oh, what do you do with a drunken sailor, what do you do with a drunken sailor, make him the captain of an Exxon tanker, early in the morning!”
Exxon refused to take responsibility for their accident in 1989 and they are still in the wrong today. I disagree with this ruling 100 percent. I have not knowingly bought Exxon gas since the accident occured nor will I ever knowingly buy Exxon gas again. I would not support Exxon in any way, shape, form, or fashion ever!
Exxon refused to take responsibility for their accident in 1989 and they are still in the wrong today. I disagree with this ruling 100 percent. I have not knowingly bought Exxon gas since the accident occured nor will I ever knowingly buy Exxon gas again. I would not support Exxon in any way, shape, form, or fashion ever!
Exxon stonewalled the clean-up. There were 3 days of good weather during which much of the eventual damage could have been mitigated, had Exxon given full attention to the matter. Exxon’s initial reluctance to admit blame and take action made the disaster worse than it needed to be.
Due process is a right that EVEN big companies have a right to. The greed shown by “green” lawyers has not yet been matched.
Due process is a right that EVEN big companies have a right to. The greed shown by “green” lawyers has not yet been matched.
Exxon-another major company using litigation to keep from paying their debt to the families who’s livelihood was ruined by their mistakes. I’m ashamed at times to say these justices are the smartest of the smart in this country.
Exxon-another major company using litigation to keep from paying their debt to the families who’s livelihood was ruined by their mistakes. I’m ashamed at times to say these justices are the smartest of the smart in this country.
Not only that, the money itself is worth less and less.
I heard Jeffrey Tubin(sp?) that Souter is not really in touch with the popular world. He really fits the “ivory tower” label. With the oil companies making record profits and environment on the front burner, even from a Constitutional point of view, this makes no sense in the real world.
I’m so sorry for those people.
Not only that, the money itself is worth less and less.
I heard Jeffrey Tubin(sp?) that Souter is not really in touch with the popular world. He really fits the “ivory tower” label. With the oil companies making record profits and environment on the front burner, even from a Constitutional point of view, this makes no sense in the real world.
I’m so sorry for those people.
By not a penny paid you of course mean in punitive damages, as compensatory costs have long since been settled.
The delay does not mean Exxon does not have to pay the fine, and the deaths of any plaintiffs does not reduce the damages deemed appropriate by the courts. The estates of the deceased will still get their share. Granted, it doesn’t help the plaintiffs that are dead, but it doesn’t let Exxon off the hook, and the heirs will be paid handsomely for the damages to the decedents.
The delay does not mean Exxon does not have to pay the fine, and the deaths of any plaintiffs does not reduce the damages deemed appropriate by the courts. The estates of the deceased will still get their share. Granted, it doesn’t help the plaintiffs that are dead, but it doesn’t let Exxon off the hook, and the heirs will be paid handsomely for the damages to the decedents.
Big settlement or small, the game Exxon is successfully playing here is to delay ANY payout until most of the intended recipients are dead. Having been to Alaska they all feel totally cast aside by the US court system. Twenty years and not a penny paid to those who were damaged. And the list of those damaged gets smaller every year.
Big settlement or small, the game Exxon is successfully playing here is to delay ANY payout until most of the intended recipients are dead. Having been to Alaska they all feel totally cast aside by the US court system. Twenty years and not a penny paid to those who were damaged. And the list of those damaged gets smaller every year.
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This blog is about legal issues that matter to business people, and it's geared for nonlawyers and lawyers alike. Roger Parloff is Fortune magazine's senior editor (legal affairs). He practiced law for five years in Manhattan before becoming a full-time journalist.
Face it, in its decision, the Supreme Court grappled with its efforts to completely undermine the fairness of the judicial process. The Roberts Court has become an vehicle for the Defense Bar that seemingly seeks to curry favor with the corporate titans that currently hold the lease on the White House. The environment is for sale to the lowest of bidders.